Of all industries doing business across North American borders, none stands to be more affected by a possible end to the United States-Mexico-Canada Agreement than automotive manufacturers.

Operations within Mexico would be especially impacted. The country’s automotive exports to the U.S. reached $58.9 billion in the first four months of 2025, versus $44.9 billion in the same period of 2018. In 2024, Mexico accounted for the largest share of U.S. auto imports, with 22.7% of the market.

The trend was interrupted, however, by a 25% tariff on imported vehicles and parts imposed by President Trump last year. It resulted in a 13.4% year-over-year drop in the value of Mexico’s auto-industry exports to the U.S. in the first two months of 2026.

Such short-term damage could pale by comparison, however, if the USMCA is dismantled. President Trump has indicated that he won’t pursue a 16-year renewal of the tripartite agreement, preferring instead to engage in annual joint reviews with Mexico and Canada until expiration on July 1, 2036. (That decision could be reversed at any time between now and then if the parties agree to undertake negotiations for a formal extension.)

Trump justified the 25% duty on auto imports under section 232 of the Trade Expansion Act of 1962, which permits such action if the U.S. Secretary of Commerce determines that a specific class of imports “threatens to impair” U.S. national security. That finding has proved to be “an expensive hit for the automotive supply chain,” says Angela Gamalski, partner in the Regulatory Department of the Honigman law firm. She notes that the 25% tariff was imposed on top of existing duties, meaning that the cumulative rate can range from $27.5% to 50%, depending on type of vehicle and country of origin.

The higher duties come with a heavy compliance burden, requiring original equipment manufacturers to track the origin of all automotive parts in order to qualify for certain mitigating offset licenses.

The licenses are run through the Commerce Department, which looks at the total number, cost and origin of auto parts to determine how much of a vehicle is being sourced in the U.S. Qualifying automakers making formal application for relief are given a dollar amount that they can apply as credit for tariffs they’re already paying. They can also assign that amount to specific importers within their supply chains that are taking the biggest tariff hit.

All of this figures into decisions by North American manufacturers as to where they’ll site their plants in the coming years, especially the reshoring of some production back to the U.S. But tariffs are just one element in that calculation, Gamalski says, along with issues of product quality, geography, labor, logistics and total landed cost.

“The automotive supply chain is planned so far in advance that you can’t pick up in mid-planning cycle and move something to re-source it,” she says.

USMCA is a crucial part of the picture because auto  parts qualifying under it are exempt from the section 232 tariffs. How that process would play out in the absence of the agreement or a similar treaty is uncertain, Gamalski says. “The million-dollar question for long-term planning cycles is, Are those 232s going to stay in place?”

Bilateral talks between the U.S. and Mexico could address the problem, she says, but the benefit of USMCA is that it establishes a “level playing field” among the three member countries, “with everyone working to apply the same standards.” The U.S. has been having “very different” conversations with Canada, Gamalski notes, “but there’s an understanding that the USMCA, at the end of the day, is a three-party agreement. It’s got to be balanced.”

Adding to the confusion and complexity for automakers is the recent emergence of “software-defined” vehicles, which are not directly addressed by the current USMCA. Instead, they’re subject to a separate regulatory regime under the Commerce Department’s Connected Vehicle Rules, administered by the agency’s Bureau of Industry and Security. While they particularly target vehicles, hardware and software relating to China and Russia, the rules promise to impact the entire automotive industry because they bring into the picture additional federal agencies, including the Federal Communications Commission. And they’re certain to target self-driving software regardless of where the cars were built.

A complete end to USMCA or anything like it in 2036 seems unlikely at this point. A new administration taking office in January of 2029 could recommit the U.S. to the notion of a tripartite pact. And the annual reviews that are directed by the current agreement could address at least some of the complexities facing North American automakers. “In some ways, it’s like a real estate lease,” Gamalski says. “You’re at the end of the term, and now you’re on a month-to-month lease.” But it’s the surrounding uncertainty around USMCA’s fate that is causing the industry particular pain at the moment.

The hope for manufacturers is that regulators will come to see the importance of a strong and distinct North American auto industry, and provide some stability in the form of a coherent, long-term policy for the entire region. With similar efforts taking shape in Asia and Europe, Gamalski says, “it’s hard to fathom that the parties would not continue to facilitate a trade agreement among them, given the competitiveness of the auto industry.”